Appraisals Remain Big Hurdle, Agents Say
Daily Real Estate News | Tuesday, October 16, 2012
Appraisals have been blamed on derailing a lot of sales in recent years. In fact, more than one-third of REALTORS® recently reported that deals were canceled, delayed, or renegotiated to a lower price due to a low appraisal.
The National Association of REALTORS® has spoken out against faulty appraisals, blaming it on holding back the housing recovery.
More real estate professionals are starting to include appraisal contingencies in their contracts. These contingencies specify how much a buyer would be willing to pay in cash in case the appraisal comes in lower than the agreed upon sales price.
Appraisers have been criticized for using foreclosures as comparable homes in their valuations and for failing to take into account market conditions like the low inventory and bidding wars in many areas, according to NAR’s report. NAR also has criticized many banks for increasing their requirements to six comparable sales instead of three, particularly at a time with low inventories.
“It’s holding sellers off the market,” Jed Smith, NAR’s managing director of quantitative research, told The New York Times. “Sales volume could probably be an additional 10 to 15 percent higher if we had normal lending practices and if we had normal appraisal practices.”
Appraisers say they’re not making valuations lower but they’re reflecting the current value of homes.
“Appraisers don’t set the market, they reflect what’s happening in the market,” Ken Chitester, a spokesman for the Appraisal Institute, told The New York Times. “So don’t shoot the messenger. Blaming the appraiser for a bad housing market is like blaming the weatherman because you don’t like the weather.”
Appraisers don’t always make adjustments if they use bank-owned homes in comparables because not all REOs sell at a discount and not all are in bad condition, says Dan McKinnon, who operates an appraisal company in Phoenix. When neighborhoods are dominated by REOs, those homes need to be factored in to help determine the value of homes, he adds.
“If that property is in similar condition to your subject, it is direct competition,” McKinnon says.
Source: “Scrutiny for Home Appraisers as the Market Struggles,” The New York Times (Oct. 12, 2012)